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The bulls fail yet again but a panic bottom is likely this week

It would be worth taking a chance of buying in any panic in the first couple of trading sessions this week. However, one thing is certain that the shorts should cover their positions in any panic in the first half of the week

S&P Nifty close: 4,841

Market Trend
Short Term: Down  Medium Term: Down   Long Term: Down

The Nifty opened better and rallied for a first couple of days on short covering because the 4,957 level was taken out. It almost touched the R2 level of the week before renewed selling pushed it below the 4,957 mark (thus failing to give a weekly close above it) which saw further unwinding of longs as the Nifty hit the S1 level of the week pegged at 4,830 points. In a week of see-saw trade the Nifty finally ended 79 points (-1.60%) in the red. The volumes were also higher during the decline due to the overall trend being bearish.

The sectoral indices which outperformed were CNX IT (+0.39%), CNX FMCG (+0.16%), CNX PSU Bank (+0.02%) while the gross underperformers were CNX Auto (-5.49%), CNX Finance (-2.09%) and CNX Media (-2.09%). The weekly histogram MACD which had turned up marginally last week, turned lower signifying that the bears are very much in control.

Here are some key levels to watch out for this week
■ As long as the S&P Nifty stays below 4,897 points (pivot) the bears are in control and should use this level as a stop loss on shorts.
■ Support levels in declines are pegged at 4,775 and 4,709 points.
■ Resistance levels on the upside are pegged at 4,964 and 5,086 points.

 

Some Observations
1. The Nifty is facing stiff resistance in the 5,135-5,185 area which has to be taken out in close for the bulls to be shaken.
2. Weekly averages remain negatively phased implying that the bears are in control and immediate bottlenecks are pegged at 4,964, 5,045 and 5,086 (optimistic scenario) this week.
3. We are witnessing a five wave decline on the daily charts and a panic low in the next couple of days should be bought into only from a trading perspective.
Strategy

A breach of the recent low of 4,788 points would result in the current decline being in five waves on the daily charts which would set up the scenario for a contra trend rally. However, since the trend is firmly down the expected recovery will lack confidence in the initial stages and only the die-hard traders would be able to take advantage of it. The weekly oscillator is also exhibiting a positive divergence at this moment and if it succeeds in holding on, the chances of our above-mentioned scenario likely to play out increases. It would be worth taking a chance of buying in any panic in the first couple of trading sessions this week if our anticipation comes out to be correct. However, one thing is certain that the shorts should cover their positions in any panic in the first half of the week.

(Vidur Pendharkar works as a consultant technical analyst & chief strategist at www.trend4casting.com)

 

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